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Home Mortgage Disclosure Act Public Hearings, September 24, 2010

ELIZABETH DUKE:Let's get started. First of all, on behalf of the Board of Governors of the Federal Reserve System,

I would like to welcome everyone to the last of our series of public hearings held to discusschanges to the Home Mortgage Disclosure Act. The knowledge and the feedback we havegained from these hearings will help us assess the adequacy of current mortgage data, examinethe need for additional data and explore possible changes to Regulation C, which implementsHMDA.

I would like to thank our colleagues at the Federal Reserve Banks of Atlanta, San Francisco andChicago for hosting the first three hearings. Our series of hearings kicked off just as Congresspassed regulatory reform legislation earlier this summer. The Dodd-Frank Act provides for somechanges to HMDA data collection and submission, and we look forward to hearing from ourpanelists and members of the public about the implementation of these changes.

The new law also transfers authority for HMDA rule making from the Board of Governors to thenew Consumer Financial Protection Bureau. All information gleaned from these hearings willinform our own work for the time that we continue to have rule writing authority and when thatauthority transfers to the CFPB, be assured that we will hand over the most current thinkingabout changes to Regulation C.

Over the course of these hearings, we have heard from key players in the home mortgage market,lenders and other market participants, academics and researchers, consumer advocacy andcommunity development organizations, data experts, regulators and other public officials.Although they play different roles, we believe that all share a common goal: to ensure that themortgage market is responsible, transparent, efficient and serves the needs of consumers andmarket participants alike.

The recent mortgage crisis has highlighted the potential ramifications of a mortgage market thatis not functioning well. HMDA data do not create the market or solve all market problems, butthey do help us to understand what's happening in the market. The time is certainly right forreviewing and revising the data elements, standards and reporting formats.

HMDA has three purposes. One is to provide the public and government officials with data toshow whether lenders are serving the housing needs of the neighborhoods and communities inwhich they are located. A second is to help government officials target public investment topromote private investment where it's needed. A third purpose is to provide data to assist inidentifying possible discriminatory lending patterns and facilitate the enforcement ofantidiscrimination laws, such as the Equal Credit Opportunity Act.

Today's hearing is intended to serve as a venue to discuss whether or not the 2002 revisions toRegulation C provided useful and accurate information about the mortgage market, to gatherinformation that will help assess the need for additional data elements and improvements and toidentify emerging issues in the mortgage market that may require additional research. As I saidwww

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earlier, we are also interested in any comments on the implementation of the HMDA elements ofregulatory reform legislation. We have gathered this morning an impressive array of panelistsrepresenting a broad spectrum of vantage points, and we look forward to their comments. Thisinput, together with the input of the preceding hearings and written comments submitted fromthe public will be carefully weighed as we consider changes to Regulation C.

And now I would like to turn to some housekeeping details. First of all, this hearing will be partof the public record and our assessment of possible changes to HMDA, and transcripts will bemade available. Panelists and members of the public are actively encouraged to submit writtencomments, and you can find instructions for submitting a written comment on the FederalReserve Board website.

Each panelist will be given a maximum of five minutes for opening remarks. Let me apologizein advance. We want to ensure that everybody has a chance to speak and so we have a mean girlup here and she's --

[Laughter]

-- she's going to be working the light system. The green is, of course, when you start. When youhave two minutes left, it will turn yellow and she will hold up a two minute sign, thusly. Andthen when your time is up, it will turn red. A buzzer will beep and she will hold up a stop sign.Please feel free to finish your sentence.

Then following the panels, we will have one hour of open mic for audience members who wishto speak on the record. If you wish to speak in the open mic period and you have not alreadysigned up, please do so now. We will take speakers in the order in which they signed in, and thespeakers will be limited to five minutes each. We will take as many as we can accommodate inthe hour that's allotted.

And now --

FEMALE VOICE :You might want to tell them how to sign up.

ELIZABETH DUKE:The sign up is right outside that door.

Now let me introduce the presiding panel. We are fortunate that we have a Consumer AdvisoryCouncil that we meet with several times a year, and they bring us very important informationabout what's going on in the consumer market place and from the field, and so for the first timein these hearings, we have been able to utilize members of the CAC as parts of our panel. Weare pleased to have Paula Bryant Ellis, who is senior vice president of BOK FinancialCorporation who is with us today. She will be with us for the first panel and then for the secondand the third panel, we will have Michael Calhoun, who is president of the Center forResponsible Lending and also chairman this year of the CAC. In addition, we have thewww

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leadership of the consumer and the community affairs division of the Federal Reserve Board.Sandy Braunstein is director, and Leonard Chanin, deputy director.

And so with that, thank you for all of you for being here on this panel and let me turn to panelone, where we have Jay Brinkmann, chief economist and senior vice president of research and

economics for the Mortgage Bankers Association; Thomas Noto, associate general counsel atBank of America; Lisa Rice, vice president National Fair Housing Alliance; Cy Richardson,vice president housing and community development, National Urban League; Faith Schwartz,senior advisor to the Hope Now Alliance; and Josh Silver, vice president of research and policy,National Community Reinvestment Coalition.

Thank you all for being here, and Mr. Brinkmann, you may begin.

JAY BRINKMANN:Thank you very much. I'm Jay Brinkmann chief economist with the MBA. And I apologize inadvance for how I sound. I picked up a cold in the last day or so after two weeks on the road, so

please bear with me. I have some written remarks, but I will simply sort of paraphrase them tomake sure I get in under the five minute limit.

I wanted to talk about first of all, about what should be required in terms of the data reported.How should the data be reported? What should be used as the universal mortgage identifier?What data should be made public, and finally just some comments on multifamily.

In terms of what should be reported, I think it's important to bear in mind the burdens that areplaced on mortgage lenders in terms of complying with HMDA. So that any changes that aremade create tremendous burdens in terms of trying to reconcile the data, make sure it's accuratewithin risk allowable tolerances for errors so that one change in the information that we can livewith for some period of time would be very helpful.

Also bear in mind, though, that in terms of looking at potential data it's impossible to replicatelending models based on what gets reported in HMDA. And one of the fears is that as weexpand it, it turns into a safe harbor that in a sense freezes what's allowable in a credit modelwith these data elements. For example, over the years, I know companies that instead of a creditscore preferred to look at how many times a potential borrower has been late on a housingrelated payment as opposed to their overall credit score. In addition, there's some lenders thesedays quite frankly that won't make a loan to someone who has walked away from anothermortgage or looks like they are getting ready to walk away from another mortgage, and thatcertainly would not be picked up.

How to report? One of the things we strongly recommend is that you look at the MISMOstandards, the Mortgage Industry Standards Maintenance Organization, for definitions, forformat, and I think this might address issues, for example, with HUD reported credit score. Thatif you like at the MISMO, we don't simply look at one field for credit score. There's a field for anumber. There's also then a field of whether it's a vantage score, whether it comes from FICO,what vendor reported the score. So that there are a number of variables then that are reallybehind it, and if you simply then pick up all of these variables associated with the credit score thewww

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way we do, you can then use the information internal to then generate whatever percentile orwhatever calculation you would like to do, but that that would not be put back on the lender toreenter data, to rekey it, but instead use what's already out there in the industry. Also it wouldprovide for easier changes later on, if any additions are needed.

What about a universal mortgage identifier? That has been brought up. We would stronglyrecommend that you look at the mortgage identification number that's been put out by theMortgage Electronic Registration System, MERS. It allows us to track mortgages throughout thesystem from application all the way to sale of servicing, sales of the secondary market and Ithink for these purposes it would allow us to really sort of track some of the under coverage thatwe do see in the HMDA data. We did some analysis and found that by throwing out all thecorrespondent loans, we are eliminating a number of loans that had no counterpart in the retailbroker data.

What to make public? Well, we really think that's your decision. In a sense that there are anumber of data elements here that we would very much not want to make public as companies

because of the limitations we face, but that certainly that's an issue that the bureau and the Fedwill have to face going forward is the tradeoff between risks of identity theft associated withsome of these elements and that, but that's really your decision to make rather than the industry,and to some degree, we would benefit, I think, in terms of what would explain what's going on inthe industry with a greater data release.

Finally on multifamily, we did an analysis and we think that HMDA already covers about 95percent of the multifamily loans that are made. In contrast, though, it covers only about 60percent or so of the dollar amount of the loans. So that if you look then at the average loanamount that's in HMDA, it's about $1.7 million for a multifamily loan. If you look at the averageloan size of what's missing, it's about $19 million. So we don't know how much effort reallyshould be put into trying to capture this remaining 5 percent of really high dollar loans that aredone for just an entirely different set of investors out there. So I think you really ought to look atwhat do you really want to do with the multifamily data? Do you really want to expand it or isthere a questionable usefulness of what's already there? Thank you.

ELIZABETH DUKE:Thank you. Mr. Noto.

THOMAS NOTO:Governor Duke, thank you. My name is Tom Noto. I'm an attorney at Bank of America andsupport the bank's home loan originations platforms, as well as the fair lending enterpriseoperations.

I'm going to try to do something which is wildly uncharacteristic for a lawyer, which is to notonly finish in five minutes, but to finish in two minutes. We will see how I do. I have submitteda written statement, and we also had the opportunity to work with your very, very talented staffon some of the issues. So I think the technical stuff is there.www

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This is obviously an extremely important exercise. We appreciate the opportunity to be in it, andI think that to second a comment that you made, a lot of things have been evolving in parallel tothis, principally Dodd-Frank. I know that we have a proposal here on the table that we areworking through, but, you know, when all is said and done, I will second Jay's comment of theburden that new regulations impose on the industry, and I guess one thing that we would -- we

would very much urge you is to put this all together in one place and really work through theissues which are presented by Dodd-Frank.

I think just as a technical implementation exercise, it will be very, very complex. It will be verydifficult as the data becomes more particularized on the transactions to get the kind of crosscomparability among institutions which I think we all agree is very, very important here.So I guess what we would say is -- and hope -- is that as we work through this, we work throughit and at one point and one time. And deal with, again, this comparability issue, as well as I thinkthe privacy issues which I know are very much on your mind as you implement that.

So, again, I appreciate the opportunity to be here and look forward to the dialogue that I think we

will have.

ELIZABETH DUKE:Thank you. Ms. Rice.

LISA RICE:Thank you for this opportunity to comment on the regulations that implement the HomeMortgage Disclosure Act. I'm Lisa Rice with the National Fair Housing Alliance. We have beenable to glean very helpful information from HMDA. The HMDA data, for example, reveals thatAfrican Americans and Latinos disproportionately receive higher cost loans, even aftercontrolling for elements like income and loan amount.

The data made available by HMDA is very compelling and demonstrates that much more needsto be done to address lending disparities. The data has been used by fair housing organizationsto target limited resources to areas that demonstrate the greatest disparities. It has also been usedby fire housing groups to help identify reinvestment opportunities. However, there's no doubtthat additional data elements will improve the efficacy of the data and the usefulness of the data.Dodd-Frank will add important additional fields like age and points and fees. In our moredetailed comments, we describe the need to collect more data fields beyond those covered inDodd-Frank, such as the loan to value ratios, cumulative loan to value ratio, the debt to incomeratio and the type of loan.

NFHA also strongly encourages the collection of the three items identified in Dodd-Frank thatare left up to the discretion of the CFPB: the loan originator number, the universal loan identifiernumber and the parcel number.

I must note that while NFHA is pleased to see the credit score included as a collectible itemunder Dodd-frank, we continue to raise our concerns that the use of credit scoring mechanisms,www

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at least in their current form, undoubtedly perpetuate discriminatory outcomes. The use of creditscores continues to raise fair lending concerns.

NFHA also encourages expanding HMDA to include servicing data. Currently under HAMP,many services are collecting and reporting critically important data on HAMP modification

applicants. However, most modifications are exercised outside of HAMP. This severely limitsthe public and government's ability to monitor fair lending issues as it relates to homeownershippreservation.

HMDA should be expanded to cover all loans. All institutions providing mortgage loans, loansused for any housing related purpose or loans secured by residential properties need to reportHMDA data. We need a complete picture of what is happening. The housing finance sector istoo important to the entire economy, and it is critically important, particularly at the micro-economy level for us not to understand what is happening in that space.

There are some who are calling for the elimination of information on preapprovals. This would

be a grave mistake. It is often at this stage that discrimination occurs, and we need to know whatis happening to consumers at the preapproval stage.

While expanding HMDA is critically important to help us understand and track what ishappening in the lending sector, the data will not be helpful if it is not accurate. Fair housingprofessionals and attorneys representing fair lending plaintiffs have reported wide spreadinaccuracies in the HMDA data, including the exclusion of alleged victims of lendingdiscrimination from the HMDA data. Therefore, measures must be taken to ensure that the datais correct. Lenders who do not report data accurately must be reprimanded and must face stiffpenalties, particularly when they misreport data related to a fair lending complaint. Thank you.

ELIZABETH DUKE:Thank you. Mr. Richardson.

CY RICHARDSON:Thank you. The National Urban League thanks the Federal Reserve for the opportunity tocomment on potential revisions to Regulation C and the data provided under HMDA. In ourview, these hearings are timely, particularly within the context of the racial wealth divide inAmerica, which has been exacerbated by the growing loss of home equity in communities ofcolor. The current crisis has taught us that reckless, expensive and unstable mortgage productsand practices foster instability and imperil consumers and underscores the differences betweenlending approaches that work and those that do not.

From the National Urban League's vantage point, the lending practices that work are those thatseek to prudently lower the risk to both borrowers and lenders, such as careful underwriting,assessing the borrower's ability to repay the obligation, full documentation of income and assetsand prepurchase counseling that adheres to national standards. We have ample empiricalevidence that these factors increase responsible and sustainable home ownership and the lowdefault rates associated with these features demonstrates the value of good mortgage products.Our affiliates have historically employed HMDA data to analyze and map home mortgagewww

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lending by banks and other financial servicing institutions. For us, data under reported HMDAhave been critical in monitoring compliance with fair lending laws and enforcing CRA.

Like most good laws, however, HMDA could be improved upon. Specifically, we feel that thedata collection could be enhanced by the addition of information that affects the borrower's credit

risk, based on underwriting variables, such as the borrower's credit score as mentioned, theborrower's debt to income ratio and the loan to value ratio of the mortgage. This informationwould better help explain mortgage lending disparities among what otherwise appear to besimilarly situated loan applicants and borrowers of different ethnicity, race and gender.

Additional underwriting data from lenders, such as detailed product information, mortgage ratelock dates, overages, additional fees paid and counteroffer information would also be useful dataenhancements. This information would help assess the basis for mortgage rate disparitiesidentified through initial analysis of HMDA.

We also believe without adequate data from the preapplication phase, such as through the use of

testers, surveys and alternate means, fair lending oversight and enforcement is incompletebecause it includes owning information on the borrowers that apply for credit and not the largeuniverse of potential borrowers who sought it. Considering that some observers are pushing forthe collection of back-end ratio data that take overall household debt into account and are a betterreflection of a borrower's overall debt burden, we concur and would argue that requiring lendersto report how they documented a household's income, when underwriting a mortgage, and howthey measured a borrower's debt load is an important data point to capture and could help toidentify and isolate those lenders who routinely put borrowers into loans they cannot afford.

Moreover, we believe lenders who purchase loans for CRA credit should be required to reportthe same level of data as if they originated the loan.

We are also aware the board is interested in understanding the potential costs and burdensassociated with enhanced data reporting. To be sure, tangible costs are associated withgeocoding loans, hiring compliance officers and doing paperwork, however we believe theburden of reporting is easily relieved by data products already available in the market place. Wealso believe all HMDA filers should routinely report the expanded information as part of theirregulatory, nonpublic reporting obligations.

Even if HMDA data shows nothing more than concentrations of higher cost loans in minorityneighborhoods, the responsibility rests with lenders to explain why disparities exist and whatthey mean.

Finally, some financial institutions have argued that the distribution of HMDA and CRA dataforces them to compromise the privacy of their clients. There is some truth to this. The data docontain explicit information that reveals quite a lot when appended with other data sets. To us,though, these cries ring false in the greater context of business as usual. If banks were sincere intheir desire to safeguard the financial information of their customers, they would not sell data tothird parties, which has become commonplace in the financial services sector.www

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While inherent limitations would remain under any expanded HMDA framework, it willunquestionably contribute to a greater overall understanding of the mortgage industry.

The information requested will provide regulators, lenders and the civil rights and advocacycommunities with more complete context for evaluating the prime and the subprime markets.

Additionally, the data will form the backdrop for additional compliance risk managementactivities on the part of banks, particularly with respect to fair lending and predatory lending.

In closing, as we would all agree, HMDA is an invaluable tool for many civil rights andconsumer rights organizations, as well as federal, state and local regulators. The Leaguesupports all recommendations that improve transparency and efficiency of data collection,reporting and analysis, and we're appreciative for the opportunity to share our views and listen tothose of other on proposed improvements of Reg C and the data provided under HMDA. Thankyou.

ELIZABETH DUKE:

Thank you very much. Ms. Schwartz.

FAITH SCHWARTZ:Thank you. Good morning. I'm pleased to be invited to participate this morning and I applaudthe Federal Reserve for undertaking these important hearings.

I have worked in the mortgage industry for a number of years, in the capital markets, riskmanagement and policy arena. I have been on the Consumer Advisory Council at the Board ofGovernors and most recently I was the executive director of Hope Now, the nationwideforeclosure prevention alliance, and I'm a founding member of the Hope Loan Port, a nonprofitweb-based tool that allows borrowers, consumers, nonprofit counselors to submit files toservicers that are secure for loan modifications. I am an advisor to both companies so thesecomments are all of my own.

In the positions I have held, I wrestled with the difficulties of collecting good data and decidingwhat would be most relevant and indicative of the trends in the market. For example, HopeNow's data covers 75 percent of the servicing market, and we have a good feel of both theopportunities and the problems in the current data collection arena.

My main message to the Board of Governors would be to make sure you are collecting relevantdata that's needed to adequately monitor fair lending compliance. Good data provides guidanceto policy makers and often presents information that might not be intuitive. The board shouldnot be reluctant to collect the data it feels it needs. At the same time, it's expensive to collectdata, time consuming and if collected in a piecemeal fashion, it may lead to inaccurate analysisfrom considering without the entire book of knowledge that the underwriters have when theymake those decisions.

A path to good execution for industry is important, and there needs to be enough good verifiableinformation to assist in fair lending analysis for industry, as well as regulators. My broadwww

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experience has led me to believe that good risk management incorporates relevant, transparentand fair underwriting, it usually results in data that demonstrates fair decision making by lenders.

For regulators to determine whether the laws in place, and under the particular law recentlyannounced by the Dodd-Frank Act, if they have been violated, the data should be robust enough

to ensure adequate protections.

The Dodd-Frank bill will add many new new data points in the HMDA law. In addition to thosenew data points, some consideration should be given to directing the disclosure of additional datathat would be useful for lenders and consumers alike in the joint effort to make transparent basisfor lending decisions.

For example, front-end debt to income ratios are very important to lenders in their underwritingdecisions, as are loan to value ratios. This would be useful to collect. Back-end debt ratios andincome ratios are also useful, but different lenders apply different weights to the importance ofthose ratios because of the secure position the mortgage will hold. I believe there's some merit in

collecting the information on the back-end debt to income ratios, but only to the extent that it'sused by the lender in arriving at its credit decisions.

Credit scores are useful to many lenders. They serve as benchmarks for guidance and myrecommendation is in favor of providing those scores. Collection and publication of these datafrom the prospective and the understanding of the basis on which the loan was made is relevant.Fear that publishing such information, however, will reveal who the borrower is on a particularloan is a real fear and must be addressed, balancing the need for collection and publicationagainst the risk of breach of confidentiality remains an important concern.

There's another category of data the board might wish to consider. During the past few years andinto the near term future, there will be a wide variety of loss mitigation practices in whichlenders and borrowers will engage. Some of these will be under the government programs, andsome will not.

I believe there's wisdom to carefully collecting data about loss mitigation. For example, it wouldbe useful to both lenders and borrowers to have transparency about product type provided fromorigination through default and loan modification. This may include some of the variables toreach affordability, such as rate, term and principal deferral. Longer term analysis may behelpful in ascertaining the most effective use of restructuring. In contrast, collecting andreporting preapproval programs would not be productive. Most of these programs are verytentative in nature, and they are usually not sufficiently detailed to provide the kind of guidancethat should be expected.

I would publicly support -- I would support additional geographic data collection, perhaps at thezip code level. Such collection might reveal anomalies that might even be obscure to the lenderitself, such as one officer or sales person consistently charging peculiar amounts in a particulararea. The collection of this data should be subjected to notice and comments since its acomplicated subject and seeking comments will provide the best way to make the best decisionson how to collect. In addition, to the fair lending issues that are part of HMDA, I believe it'swww

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time to capture information that links the front end decision making to the back end servicingpractices to monitor systemic risk. Linking the two should be studied and subject to notice andcomment prior to any new requirements. Any additional collections should be completelyrelevant to the analysis desired. For example, the following terms may be helpful and they arenot necessarily requiring capturing significant data elements: Product type, fixed or adjustable;

fully amortizing or interest only; 15 or 30 year; duration of the modification; lower P & Ipayment.

In closing, I wanted to reiterate that it's a good idea to provide enough information that isobjective -- that objective analysis can come closer to fair and reliable conclusions for any biasthat might still be found in the home mortgage lending. I support the efforts of the board to doso.

ELIZABETH DUKE:Thank you. Mr. Silver.

JOSH SILVER:The National Community Reinvestment Coalition appreciates that the Federal Reserve Board isconducting hearings on possible revisions to the Home Mortgage Disclosure Act data. Theboard's 2002 revision to include price information for high cost loans and other dataenhancements has increased transparency in the mortgage market. Thank you.

NCRC urges the Federal Reserve Board to make further enhancements to HMDA data. As anassociation of more than 600 community-based organizations, NCRC and our memberorganizations use HMDA data to regularly assess whether institutions are meeting credit needsconsistent with safe and sound lending practices.

By increasing the public accountability of lending institutions, HMDA has made the lendingmarketplace more efficient and equitable. Further enhancements to the HMDA data, however,are needed to enable HMDA to fully meet its statutory objectives of assessing whether financialinstitutions are meeting community needs in identifying possible discriminatory lendingpractices. This week's release of the 2009 HMDA data indicates that significant racial disparitiesremain that must be further investigated with enhanced HMDA data.

Attached to my written testimony is NCRC's recent report, Foreclosure in the nation's capital,which revealed a concentration of foreclosures and high cost lending experienced by minoritiesin Washington, D.C., even after controller for critical underwriting criteria. This study, whichcombined HMDA data with a proprietary database, provides a glimpse at how much moreeffective HMDA data could be at identifying the possibility of potential discrimination if it issignificantly enhanced.

Price information for all loans is imperative for the purpose of identifying possiblediscrimination. As recent Department of Justice settlements suggest, price discrimination isoften in the range of 50 to 70 basis points. Meaning that such discrimination may occur entirelywithin the realm of prime lending. The current data that has price information for high cost loansonly misses discrimination in the prime market. Reporting loan terms, such as prepaymentwww

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penalties and whether the loan is fixed or adjustable is also necessary to assess which borrowergroups receive a disproportionate amount of onerous loans.

The loan channel, retail or broker, sheds light on which institutions are offering responsible loansand which offer problematic loans. If more information had been available on loan terms and

conditions several years ago, stakeholders could have identified troubling trends earlier, such asa dramatic rise in option adjustable rate lending and could have taken steps to curb this lendingearlier before it contributed to the current crisis.

Additional information regarding underwriting criteria can help reveal if discrimination isoccurring or community needs are being met responsibly. Loan to value ratios, debt to incomerations and credit scores are variables that researchers need to account for when determiningwhether racial disparities and pricing or access are likely to be the result of discrimination.

In its merger approvals, the Federal Reserve Board states the HMDA data is insufficient by itselfto determine if lending institutions engage in discriminatory practices. Well, then, isn't it time to

make the data more effective for enforcement and meet its statutory purposes?

Even if after enhancements to the data, the data still cannot conclusive identify discrimination,enhanced HMDA data will nevertheless reveal much more clearly those institutions that treatsimilarly situated borrowers differently and offering the variant terms and conditions.

The enhance data would therefore improve regulatory enforcement and could lead to moremerger denials, conditional merger approvals or downgrades in CRA ratings when warranted.Enhanced HMDA data improves regulatory enforcement because it will be more readily identifyproblematic practices in a more cost efficient manner than the more intensive tasks of filereview.

Loan performance data of the type mandated in Dodd-Frank is also critical for CRA and fairlending enforcement. Banks and mortgage companies with high default rates and low levels ofsustainable loan modifications must be penalized through lower CRA ratings, merger denials andfair lending settlements. NCRC also calls for mandatory reporting of home equity lending andreverse mortgages since problematic lending practices in these loan types would be curbed withmore disclosure. In my written testimony, I talk about a number of other issues, such as the needto require more lenders to report HMDA data.

I want to last say that increasing access to user-friendly data enhances the ability of the public tohold lenders accountable for serving credit needs in a responsible fashion. NCRC calls on theFed through the FFIEC web site to make the data easier to use. The data should be in Excelrather than bulky PDF files. And the web page should have an interactive feature, allowing theuser to ask some basic queries such as the number of prime loans to African Americans in acensus tract or a county. I can't emphasize enough if the data is made more user friendly how itwould be much more possible for community groups to do some straightforward data analysisand to go to lenders with some very powerful and straightforward information and to haveinformed dialogue and to work together and to increase access to responsible lending.www

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NCRC urges the Federal Reserve Board to engage in a rule making to improve HMDA data andin so doing to improve the equity and the efficiency of the market place. Thank you so much.

ELIZABETH DUKE:Thank you. It's interesting in Washington, D.C., everybody can stay under five minutes.

[Laughter]

MALE VOICE:We practiced.

ELIZABETH DUKE:Let me start with in just about every hearing we've had, there's been this distinction between thedata that's collected and the data that's disclosed. And some discussion of the concern aboutindividual privacy.

And so for users of data, in particular, I'm interested in your thoughts on ways that privacy canbe protected without impacting -- the data can be most usable while still protecting the privacy ofthe individuals involved.

JOSH SILVER:Well, the privacy anybody? Can I just chime in? -- argument is argument that NCRC has heardfor several years but it's an argument that I find a bit of a red herring and the reason I say that isbecause the financial industry knows a lot more about my credit history and my credit score thanI do.

I was told my credit score for the first time about two months ago when my wife and I bought anew car, and it was a very good credit score, but, you know, my goodness. I think the financialindustry knows everything that's even in Dodd-Frank and sells everything about yourself to thirdparties, as Cy mentioned. So I don't think that Dodd-Frank additional data elements would reallyintroduce a lot more privacy concerns.

Nevertheless, there are intelligent ways to report the data publicly to address these concerns. Forexample, credit scores can be expressed as quintiles or percentiles as Mr. Brinkmann mentionsand, you know, didn't -- and NCRC does ask for loan level disclosure data. We think that's veryimportant. But if there's a particular concern about a very sensitive data element, you can reportit on a census tract level. Again, we prefer loan level disclosure, but there are -- I think there arethoughtful options to deal with this important question.

ELIZABETH DUKE:Thank you. Others uses of data?

CY RICHARDSON:I would only add, as an addendum to Josh's comments I think the Census Bureau has this right. Ithink for researchers and academics and in the advocacy space, I think there might be a way tosomehow identify or certify the ability of certain researchers to have access to this kind ofwww

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granular information, perhaps, it might provide somewhat of a stop gap against some of theprivacy concerns particularly for those doing that microlevel analysis.

But I -- I also would underscore the point that I think it's a little bit of Kennard and I think thereare some -- some validity to the argument. I think more transparency to err on that side is better.

ELIZABETH DUKE:Ms. Rice?

JAY BRINKMANN:I think one issue is more data is not a cure of modeling and failure to acknowledge some of theproblems in trying to copy credit models just with what's available and what's proposed but thatfundamentally we have to look at liability. And so what does the liability on the lendinginstitutions in providing the information versus what is ultimately then disclosed? And as longas we are protected on the liability front, then it really is up to the bureau and the Fed as to tryingto solve this issue.

I'm personally not a privacy expert, but that's the way we see it.

ELIZABETH DUKE:Okay. Thank you. Ms. Braunstein.

SANDRA BRAUNSTEIN:Okay. Thank you. And thank you to all the panelists for your testimony. It's very helpful.

I want to ask a few questions all around the same theme. Is that, you know, HMDA data hasbeen around for quite a long time, and I hear the concerns about the burden, and we know thatwe're going to have to add, for sure a certain number of new elements according to thelegislation, possibly some others.

So, you know, are there some things that are not as useful that could be taken off the table thatwe currently collect and one -- and specifically, I want to hear if there's others besides this, but Iknow Lisa, in your testimony, you address that it would be a mistake to remove the preapprovalinformation and we -- that has come up at other hearings, as you know. People have suggestedthat. So to you specifically, I would ask in terms of that information, the way it's collected now,I mean, is that something -- is it -- I know that there is a good possibility that discrimination ornot a good possibility, but there is a chance that discrimination can take part during that part ofthe process, but the information that's currently collected under HMDA, is that actually helpfulto ferreting out discrimination in the preapproval process?

You know the value of that particularly, and then more generally to the panel, are there otherthings that are collected currently in the HMDA data that maybe aren't so useful where if we aregoing to add a lot of things there's something we can take off the table?

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The urban institute conducted a study of a lending testing project that the National Fair HousingAlliance undertook in which we engaged in conducting almost 600 tests in eight states across theUnited States. We found that in those 600 tests, in two thirds of them, African American andLatino borrowers were discriminated against or experienced disparate treatment, and the testswere all conducted sort of at the preapproval stage. So I think removing that very important data

set from the HMDA process would be very critical. We do think that there should be morerobust reporting in that area, and also that there should be more attention paid to the accuracy ofthe reporting of the preapproval data.

In our testimony, we give you three examples. They are all hail from the Toledo fair housingcenter, of course, because that's where I previously came from and I'm very familiar with thosecases and was involved in either trying to resolve those complaints or litigating them, the onesthat were filed in court. And it's very, very clear that there's this recurring theme of inaccuracyin reporting the data, particularly data at the preapproval stage, and there is this sort of recurringtheme also of lenders saying that a person has not applied for a preapproval, or not applied for aloan when they clearly have.

So again, paying more attention to the accuracy of the data, paying more attention to lenders'compliance with the reporting requirements will help us tremendously in just knowing what wealready know. You know, what is already being reported.

FAITH SCHWARTZ:That's interesting, because it's terrible if people aren't even getting in a door to get considered fora full application for approval, but I would just say there's a lack of uniformity across the marketon preapprovals. So it's kind of garbage in and garbage out. I think preapproval data is fuzzy,and it means nothing in this environment.

To get a final approval, as we all know takes far too long right now in this credit environment,but if anything changes, it's material. And so you don't even get the final -- the real approval orthe denial of credit which it becomes a complex issue. So I'm a believer, it's not relevant becausethe way it's collected today, it's not a uniform process. Maybe you think you have an option for agreat loan and then you absolutely get denied later on. So that's why I have an objection to thatnot being relevant.

JOSH SILVER:I just want to respond to Faith's questions and I will support the National Fair Housing Allianceon the preapproval because we know during this crisis that a lot of the problem was theaggressive marketing of high cost loans to minority communities and financially vulnerableborrowers. So the interaction between the real estate agency or the broker or the loan officer, atthe preapproval stage I think is a very important thing to capture to make sure that there is notany unscrupulous behavior, and if there's a lack of uniformity, let's get our heads to go and makethe data more standardized in the order form. I think the preapproval data is important.

If we are to streamline the HMDA data, you know, NCRC is a believer in data and transparencythat makes markets more efficient and marketable, so I wouldnt recommend deleting any dataelements. If you have loan to value ratio, debt to income ratio, credit score, and additionalwww

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elements recorded by Dodd-Frank, you may not need the reasons for denial that's reported in theHMDA data, and that's an optional reporting item. I think if you are regulated by the OTS andthe OCC, you have to report it but if you are regulated by the other agencies, you don't have toreport it. So it's not a complete universe anyway. So you know, maybe look at reasons fordenial.

I want to respond to what Mr. Brinkmann was saying with econometric modeling, and they canmisinterpret the data. I think even without doing the econometric, if you look at the enhanceddata, if you have loan to value ratio and debt to income ratio and you control those variables andyou are a community group and you are studying a merger, a possible merger between twoinstitutions, you find one institution controls those variables but still treats modest income orminorities differently than Caucasian borrowers, then that's a problem and that's something thatthe public absolutely has a right to bring to the regulators' attention. I think that the enhanceddata will make -- will make -- will make it much easier for the public to know which lenders arebeing responsible and which lenders are being unscrupulous and also save regulatory resources.

Because you can really -- with the enhanced data, do a much better job of knowing whichinstitutions need more investigation for discrimination and when you have to do the moreresource intensive file review. So I think that the more data is better and, you know, even at therisk of running some inaccurate econometric modeling, I think it's a very important thing to do.

Multifamily data, I think should become much better. We should know whether it's a loan topurchase a multifamily property or refinance a multifamily property or do home improvement. Iwas interested that Mr. Brinkmann was talking about multifamily data.

The last thing I will say is report the parent institution, please, in the HMDA data. You haveWells Fargo and other large lenders with several affiliates, and it's very hard for researchers ormembers of general public to use the data as it is now.

SANDRA BRAUNSTEIN:So you took off denials and added six more things.

JOSH SILVER:Sure.

THOMAS NOTO:On the preapproval data, I sort of agree with Faith. The numbers are a little soft. And I fullyagree with the other panelists that the other phenomenon that we are discussing is veryimportant, but that's not preapprovals. That's basically prescreening at the application stage ofthe process, and that's not a phenomenon that would be picked up under the preapprovaldefinition as it exists right now. So extremely, extremely important issue but not one that relatesto the definition of preapprovals under HMDA.

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LISA RICE:I would just further comment that the preapproval is so important in today's real estateenvironment, meaning the first thing -- one of the first things your real estate agent tells you is toget a preapproval from a lender so that you are more marketable when you are out there trying topurchase a home. So it is something that the industry is pushing, the housing industry is pushing.

It's something that consumers find to be very valuable, and we do need to know what'shappening to people around that space. If -- and I understand Tom's point and Faith's point. Ithink it's a very legitimate one, but I think that we are smart enough, if we put our headstogether, that we can develop better systems, better standardization, in order to make thatpreapproval process work, make it more streamlined and make it easier to report the data and toget the data accurate, than to just say, well, everybody is using a different system and there's nota lot of standardization in the market place and so therefore the data is rather fuzzy, so let's justeliminate it all together.

I think the process is just too important to our current market place. I mean, it's what'shappening and we need to know about it.

JOSH SILVER:If I can just add to that. I very much agree. I think the preapproval process is one to gain andunderstand, and I talked about backing it up to the preapplication process, and to happen intocommunities that might be operating from information deficits.

I think, though, we look at this from a kind of systems change perspective, and if -- if HMDA isgoing to provide that framework, I think we need to advance from looking at individual stages,as snapshots of time to elongate them, to see more of a motion picture, what is happening at thecommunity level and I think the preapproval process is one we need to monitor.

JAY BRINKMANN:I would like to mention, I was in New York, meeting with the leadership of the NationalAssociation of Realtors and their complaints that preapprovals are meaningless these days tosome extent I can't agree with them. One of them is the borrowers don't always tell you truth inthe preapplication.

So when you finally go through it, you find the income is a little less than what they said theymade when they applied tore the preapproval. The property values are far different, you can't goto the expense of verifying information like that on a preapproval because you are not going tomake any money until they actually start going through the application process.

So unless there's a real desire to sort of change this to a real applications process approach, toreally a prescreening and more of an advisory role to folks saying, you know, giving you ratios,you might really want to rethink this. I think that was one of the real benefits of Fannie Mae andFreddie Mac programs over the years in working with borrowers that we found the people whocame out of those programs were much better in terms of having a meaningful preapproval, but Ithink in the current environment, I think the Realtors have a point about the usefulness.

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Thank you. Ms. Chanin.

LEONARD CHANIN:I want to follow up a little bit on the data collection and touch on some specific points in terms ofthe data and then a bit broader topic.

So first on the specific, I would like to know if anyone currently uses the category, if you will ofunsecured home improvement loans and if so how. If not, should that category be deleted fromHMDA?

JOSH SILVER:We actually call for the mandatory reporting of the home equity loans, so I would go the reversedirection. We know that there was a lot of problematic home equity lending during this crisis.And likewise, home improvement lending has been under reported element in HMDA data. So Iactually hope you tighten it up.

LEONARD CHANIN:Let me interrupt you. This is for unsecured. So home equity lines presumably are secured. Thisis unsecured where someone gets a loan that's not secured by their dwelling. It's principally usedfor home improvement process. Is that used by anyone?

LISA RICE:I think it's data that would be very useful and one of the reasons you may not be seeing it used bymore players is, you know, some of the comments that have been said earlier, it's not really,really easy to access a lot of the data and you have to be able to partner with other institutionsthat have more resources than you do.

So there definitely is a grave interest to know what's happening in that space, particularly whenyou look at older communities. So being from the center of the universe, Toledo, Ohio, I justwant to put a -- just caution that I don't think you should eliminate the data. I think you shoulddo a little bit more research to find out why more folks aren't using the data if you think they arenot.

LEONARD CHANIN:If you think of the Midwest cities like Cleveland and Toledoand Akron, that's a credit need. Unsecured home improvement lending.

CY RICHARDSON:And I think given the interest of folks particularly during this latest period of economicunpleasantness there, they are interested in remaining in their homes and I think that's importantlengths to look at.

LEONARD CHANIN:Any other?

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I would look at the technical. Those are pretty much reports or not reported more or less at theinstitution's discretion because you have to characterize them as such. The data is probably thesoftest data that there is in the reg right now from my perspective.

I think the second technical issue it's not technical, it's the Home Mortgage Disclosure Act at

the point at which you start moving outside of dwelling secured transactions I don't know whereyou draw that line. You know, I bought plumbing stuff at home depot last weekend with mycredit cart. You know? Hopefully it will improve my home.

Yeah, I don't know where you draw that line and I think, you know, harkening back to the title ofthe statute, one clean way of doing it is to stick with loan security.

LEONARD CHANIN:Other thoughts?

FAITH SCHWARTZ:

I agree with those comments. To me, it's the same as a credit card and all the unsecured debt weare having problems with but you are talking about something outside of a secured mortgageinstrument against the home.

LEONARD CHANIN:Okay. Thank you. So on a little bit broader basis, Faith, I think you had mentioned if Iunderstand you correctly, possibly reporting or gathering information on loss mitigationinformation, and so my question is for all of the panelists, as you know, under the Dodd-Frankbill, HUD is required to set up a default and foreclosure database. Whether it makes sense toseparate from that, obviously, to collect loss mitigation data, and then if so, given the lag timethat is inherent in reporting this data, of several months at least, how would that data be useful tofolks or how might you envision it useful to folks in the future?

JOSH SILVER:Well, NCRC's testimony calls strongly for loan performance data and modification data and lossmodification data. If you think of the times that we are in, we are in a foreclosure crisis, andwhether credit needs are being met and in a responsible manner, first of all, you need to thoughwhether lenders are making loans that perform, whether a particular lender has high delinquencyand default rates.

Secondly, if a loan is not performing, is the lending institution or the servicer making good faithefforts to modify the loan. I think you can construct in a thoughtful manner data fields thatcapture whether it's a principal reduction or whether it's a forbearance or whether you are addingan amount at the end of the mortgage. So I believe that this data is essential and I hope that thedata the database that HUD is creating can be linked to the HMDA data at least on the Censustrack level.

LEONARD CHANIN:Faith?www

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FAITH SCHWARTZ:My thinking around that, and one thing that is really obvious to me is that we haven't been ableto do a great job, really in our industry to connect the front end to the back end and thesustainability and so it's really a systemic risk issue, as well as a fair lending issue and we allknow that, we know that's a front end and a back end that we should be mindful of.

Better coordination among -- I don't think we know what HUD's going to collect and, again, myexperience on data collection on this issue is you can target seven good data points, but it maynot be at all relevant to what you are trying to get at. And so I mean that as equally protectionfor industry and the regulatory environment.

LEONARD CHANIN:Thank you.

THOMAS NOTO:I was going to say, HMDA was adopted in '77?

SANDRA BRAUNSTEIN:'75.

LEONARD CHANIN:CRA was 77. It was 75.

SANDRA BRAUNSTEIN:Yes, 75.

THOMAS NOTO:Let's put it this way, a long time ago. Here today we are attempting to tune up the data so that itcaptures one process which is the origination of mortgage loans, okay, and we have been at it forI can't do it that math. Now essentially if we morph it over and try to model another process, youknow, identifying outcomes is one thing, but explaining outcomes is another thing. And I thinkthat, you know, HMDA as it has evolved is designed not to just to say that a phenomenon exists,improper as it is, that's been the exercise.

I think when you move it over into an entirely different world and entirely different set of criteriaand considerations and what not, the secondary market investors and what not, that you areservicing loans for you have a completely different process.

And I think that this is a much, much larger undertaking than it seems at first blush to not just getthe outcomes but to get some reasonable explanation and fair explanation of those outcomes.

JOSH SILVER:Yet HMDA talks about meeting credit needs in a responsible fashion. I think just as the nationhas evolved since 1975 and the financial industry has evolved since 1975, so must our thinkingabout a statute that says whether credit needs are being met in a responsible fashion. And I thinkif nothing else, the foreclosure crisis has taught us it's not good enough just to make a loan andwww

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hope it works. You have to make a loan and make sure it's sauce stainable and really givesfamilies an opportunity to build wealth.

And so integral to the loan origination process is whether the loan is going to perform and ifthere's an issue with performing whether there's a good faith effort to modify the loan and not

just throw people on the street when you have a robo-signer at a financial institution, not evenlooking at whether the bank owns the mortgage or the house that the bank is going to forecloseupon. So I think it's very important to shed sun light on all of these processes because they arenot distinct. They are actually the same thing. Originating a loan that will give the family anopportunity to build a home, to build wealth to provide security for their children, and to makesure that the loan performance over time, making credit needs in a responsible fashion.

And lastly, I will say, I think there should be some thought to improving the race and ethnicdisclosures under HMDA. For example, Asians. We have some West Coast members that makea good point that the difference of more recent Asians like the Hmong community is probablydifferent than the Chinese, for example. And the HMDA data doesn't make those distinctions.

Same thing with the Hispanics. And if you -- and if you -- I think it's very important to look atrace and ethnicity in the context of loan modifications, and loss mitigation and loan performance.It would vastly improve our fair lending performance.

CY RICHARDSON:These are excellent, but to go at it further, I think this looks at HMDA and CRA. CRA formeaningful modifications would be an enhancement in this space in our judgment.

LEONARD CHANIN:Any other thoughts on loan mitigation data and the like?

LISA RICE:I would add we have seen -- this is anecdotally -- but in a number of lawsuits in the servicingspace, how integral servicing is to loan performance, and that good servicing can actuallypromote good loan performance, and bad servicing can have the opposite effect.

So I do think that it is -- I mean, we have to report the loan performance data. That's arequirement. So we should do it in the best way possible to glean as much information, usefulinformation, as we can about what is going to help promote homeownership preservation.

LEONARD CHANIN:Thank you. Paula?

PAULA BRYANT-ELLIS:Well, I'm a little late here but I wanted to try to get back in on the preapproval discussion.

I was just curious Lisa, in some of the examples you gave, what do you think it would take, whatdo you think we would have to have in data to have a really -- to be able to do a really goodrobust analysis of the preapproval process. I think wed all agree it is definitely murky. Whatwould we have to do have to do that?www

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LISA RICE:I don't know if the data elements or the data points are what is at question so much as theprocess, the varied processes that lenders use in order to give someone a preapproval and thequality of that process.

PAULA BRYANT-ELLIS:How would we capture that? What would you --

LISA RICE:Well, again, I think -- and I'm not trying to suggest, you know, that everybody has to be an appleand we can't have any oranges or strawberries but, but there should be -- if the industry canwork together to develop some standardization, and some streamlining to improve the actualprocess so that we know the information that we are getting from borrowers, consumers isaccurate, at the preapproval stage, so that the preapproval really does mean something, and youdon't have a situation where a person is preapproved and at the end of the day, they are not going

to be qualified for that preapproved amount, but also the reverse of that. Because we see theopposite of that, right?

We see many examples of times when the mortgage originator is filling out and completing thedata and the data is not completely accurate. And that can have a negative impact as well,because they are just trying to get a person in the door. If the regulators could come together toget a more streamlined approach, one that generates more accurate information, then I think wewould see that data becoming more robust.

PAULA BRYANT-ELLIS:Okay. Go ahead.

CY RICHARDSON:I would add, once they get together then they can come meet with us, the housing counselingindustry because we don't disagree. We think an important role for the ombudsman in theprocess, the unbiased ombudsman is a very important role and I think the housing counselingarea would have comments to share.

PAULA BRYANT-ELLIS:Any other comments?

Thomas, this is directed for you, but please, anyone, give your comments you said piecemealing,it will not engage in more robust data analysis. In your opinion, what will? How do we providethe public with --

THOMAS NOTO:I think my principal theme as I mentioned at the outset and that was an elliptical reference to it aswell, let's do this all at once. There's a lot of hard work to be done here. It is an enormouslycomplicated undertaking, Dodd-Frank. We are talking about credit scores. You would spendwww

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days on any one of these issues. I think my concern and I think I speak for others in the industry,if you go through one tranche in this process and another tranche in Dodd-Frank, you know,A,the burden is very, very high and number two, just from a reporting perspective, you end up withone year of data that kind of looks like this and another year of data that kind of looks like that. Iguess what I would urge you in thinking about this to do, you know, let's get it all done at once

and let's settle in and see what it looks like, rather than incremental changes over time. Youthink about the treasuries versus the APRs -- an excellent, excellent change. You look at theanalyses of the data that you have to chop it down the data and you look at it one way under onearrangement and another way under another arrangement. We are urging the board as it thinksabout this to kind of do it all at once. Jay?

JAY BRINKMANN:And just to build on Tom's excellent points is that it's not just a case of simply adding a data fieldthat you turn on a switch and suddenly it's there. You've got to go out and say, okay, which partof our system has it? How accurate is it? Is it being read in the right way and how do we test?Because there are penalties for being outside allowable variances on accuracies. So building it

and testing it and making sure you get the right, and just understanding the right items. Andthats one of the key things. When we put it out, if there's a definition that differs from what theindustry sort of is used to thinking of as that definition, that then brings in this whole issue ofinterpretation, and it may take several years to work that out.

So as you are trying to get there, to go out with one set of, okay, here's the expanded data needsand then stick to it.

JOSH SILVER:And it's also important as you go forward to make sure that the efforts are working togetherbecause in Dodd-Frank, you have HUD that's doing the foreclosure database, you know, andwhether the loans are delinquent, foreclosure and also under water -- I think that's a veryimportant part of that provision -- but to make sure that HUD is working with the FederalReserve Board and the Consumer Financial Protection Bureau to make sure that the foreclosuredatabase and HMDA talk to each other and hopefully are linked to each other, because I do thinkthat, again, that loan origination should be linked with loan servicing and loan performancebecause it -- in my mind, it is all one and the same and I'm thankful that Dodd-Frank recognizedthat disclosing loan performance is a very important data element.

So make sure that -- so make sure that they are talking to each other.

FAITH SCHWARTZ:Maybe I would just add, maybe one way to skin that cat is that universal loan number and thencoordinating with HUD because what I worry about is all the different databases required outthere, Fannie Mae, Treasury, HOPE Now, and the Federal Reserve, the HMDA collection, itwould be great to have a coordinated effort.

JOSH SILVER:And also the HAMP disclosures required by Dodd-Frank, make sure that's talking to HMDAdata. It's interesting that the Dodd-Frank just required disclosures of HAMP, maybe theywww

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thought it would be easier just to say, require the disclosures under a government program,HAMP, but as we know non-HAMP modifications are maybe half or more of the modificationsright now. So we do encourage you -- I think that's very important, disclosing the non HAMPmodifications as well.

ELIZABETH DUKE:I would like to continue down this -- this line for just a minute. We have talked a lot thismorning about different uses of data, and uses that go beyond the original HMDA purposes andover the last two years there's been a lot of frustration over the lack of data on a lot of differentfronts but data collected nor different purposes is likely to be requested in different ways whetheryou are looking at financial stability or you are looking at servicer issues you are looking atforeclosure information, you are looking at delinquency information, and I believe there wasmention made about whether the lender actually uses this information in order tore the initialapproval. I think if you were going to build a great big database of information, and you had allof the factors, which a lender might be able to use, I mean, could you end up with some studiesthat would actually determine what were the best predictors of ultimate success, be they product

type or -- or borrower characteristics.

So -- and I'm not quite sure what the question here is, but I would like your response to this, towhat extent would you be willing, for your purposes to trade off data that can be used for anumber of different purposes versus specific data points that are important to you for yourpurpose?

And then the second piece is it occurs to me that in terms of availability of credit, there's somecredit that if it doesn't fit into, you know, however lengthy the reporting process is, if it -- if itcan't be fit into that reporting process, then it -- then those are loan products that just maywhither and go away.

So I'm just curious, any reactions on this process of expanding out the purposes of the data and --and the data that we collect?

LISA RICE:Well, let me just comment on that from a practitioner's standpoint. A lot of times the data thatwe push for is reflective of our being pushed someplace else, right?

So, for example, in the 1990s, through the 2000s, there were a number of fair housing and civilrights organizations who were pushing Congress and who were pushing their elected officials toenact anti predatory lending statutes and so the push back from the public officials was what'sthe data? Well, how many foreclosures are occurring? How many of these predatory loans arebeing made? How many hybrid option ARMs are there? And so we could give anecdotalinformation and for some of us who had more resources, we could give information about whatwas happening at our local level in the city of Toledo or in the city of Raleigh.

But being able to paint a broader picture and to let legislators know what was going on morebroadly was a little bit more difficult because we didn't have these data elements. So some of therequests for the data elements that you see are a direct result of that. Because in order to affectwww

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public policy, in order to get those kinds of changes that are important, public officials, electedofficials want to know more data to justify the legislative actions that they are taking.

In 2007, a number of civil rights organizations called for a foreclosure moratorium while thefederal government, the consumer protection and civil rights industry and the lending industry

could formulate a very broad scale homeownership preservation program.

So we had sort of our data and the lending community had its data, and we said there's going tobe a foreclosure crisis, there's going to be a credit crisis. The markets are going to freeze up, andwe are going to see foreclosures like we have never seen before, and the lending communitycame with their data and said, no, that's -- you know, pie in the sky. You are -- what is it called?The chicken, sky --

ELIZABETH DUKE:Chicken Little.

LISA RICE:Thank you. And said, No. If you take out Ohio, Indiana, Michigan, Pennsylvania, and one otherstate, it's a normal housing market.

So what happened? We got the pie in the sky, the sky fell.

And so some of the push that you see coming from us is because it's what we get pushed forwhen we ask for changes to be made and the elected officials are saying, no, they don't need tobe made, or the industry is saying, no, it doesn't need to be made.

ELIZABETH DUKE:Yes, Faith?

FAITH SCHWARTZ:It's pretty complicated. Theres a lot of data out there. I would say the OCC metrics and theirreporting has become very robust and they have a better knowledge of what's going on at thebanks. The state regulatory group that collects their data, they have great knowledge too, and wehad an aggregate level at Hope Now we trends in data, but that's not what we are talking aboutthere. I think you need to put it out for notice and comment, because the burden of not knowingwhat the front-end data is, versus the back-end is real. And I would challenge the regulators towork together, HUD and the Fed to really solve for this, and be very thoughtful that everythingcollected is relevant and nothing more.

Because this gets back to, why is all of this data going out there if it doesn't have anything to dowith the key questions being asked, whatever those are. I can't predict what those are, but I thinkit's up to the regulators to also come together and figure that out.

ELIZABETH DUKE:Well, in a lot of cases there's some real cases of data envy going on. I know the researchers herewould like to have access to some of the data.www

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JOSH SILVER:You have Cy and me. You motivated us.

CY RICHARDSON:

Just briefly, I couldn't improve on anything that Lisa said. I would say, though, I understand themaxim that not all things are meant to be measured, but given the gravity of what we have beenthrough, I don't think that's one of these issues.

JOSH SILVER:And I would like to echo and elaborate on what Cy just said, should we pick and choose whatdata elements. Think about the crisis that we have just been through: the worst recession sincethe great depression. And if we could have had data disclosure -- I'm not going to be sosimplistic to say that better disclosure data would have prevented this great recession, but I thinkit could have curbed severity of this great recession because when I was listening to thecongressional testimony in 2007, and when you had the comptroller of the currency and the

director of the office of thrift supervision and the chairman of the Federal Reserve Boardtestifying before Congress and saying, we think that the crisis is going to be contained withinsubprime lending, you know, we did not know, because we did not have access to publiclyavailable data on option ARM lending, on exotic prime mortgage products that the crisis was,indeed, as we quickly became -- as we quickly realized, it was beyond subprime lending. Thisirresponsible lending was pervasive throughout the lending market place.

So that more transparency and disclosure, I think, could have significantly curbed these recklesslending practices and perhaps we may not be seeing the economic mess that we are sitting intoday.

And I remember talking to an editorial writer for The New York Times and mentioning that tohim and he said, You have a press release, and you have a press conference, because when youthink of the costs and the benefits and, yes, collecting data does involve costs, but I think -- thinkof the benefits to this country and think of the trillions of dollars of wealth that we have lost andif we had more robust data collection, we may -- we may not have lost trillions of dollars and Iworry about the new generation going out and finding jobs. When you think of robust datacollection, you never know what's going to be important. I remember a few years ago, talking toGlen Canter and Glen was saying. We should be talking what should be on the FFIEC web page.I said to Glen, you probably do want some high cost lending trends on FHA lending. He and Iknew that there's traditionally hasn't been a whole lot of high cost lending in FHA lending, butrecently, you look at the HMDA data and there is some high cost lending in FHA lending. Weneed to know more what's going on there.

I think it's important to have a robust database because you don't know what trends are going toemerge. I think the benefits will greatly outweigh the costs.

ELIZABETH DUKE:Thank you.www

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SANDRA BRAUNSTEIN:Yeah, I would like to get some -- hear your thoughts on the collection, specifically of credit scoreinformation. This is something that's been raised for years that people have asked for, to beadded to the HMDA data, at least I will say the community and consumer side have asked for itto be added to the HMDA data. And it's always mentioned as a key factor, but, in fact, there are

some issues around it, because there are different kinds of credit scores, different numbers,different systems. You know, some the FICO is the one that's most widely known, but a lot ofindustry use their own proprietary systems.

And so if this data is going to be meaningful and we collected, how would we do that so that youcan actually make some comparisons so that it's actually useful? Do you have any suggestionsfor us on that?

JOSH SILVER:Yes now

SANDRA BRAUNSTEIN:I actually thought you would.

JOSH SILVER:I was wondering if my industry panel partners --

SANDRA BRAUNSTEIN:You didn't give them a chance.

JOSH SILVER:I sensed some hesitation, but actually I was going to agree with Mr. Brinkmann. He mentionedthat on the credit disclosure, you have one data field that indicates the type of credit score. Is itproprietary, is it FICO, or is it some other, is it some other credit score model? You know, youcould have three to five categories, whatever seems to make sense, and then you could also havea category called alternative credit score because there are -- there are private companies usingutility payments and rental payments. So you could even have that as a category.

And then you have another data field that indicates the percentile of risk or the quintile of riskrather than the specific numerical score because the specific numerical score will differ acrossthe different types of credit scores.

And I think those -- those two data fields will be very, very useful.

You know, when NCRC has been able to get this data on a one time basis, we have foundcontrolling for credit scores and other key underwriting variables that racial disparities in lendingremains, and the Federal Reserve Board finds that as well. So I think it is very importantinformation. And I think also another important thing to think about is you can compare and youcan look at fair lending within the credit score companies. Is there a credit score company thatlooking at all the other variables in the data set, that are giving, say, protected classes muchlower scores? And the other credit score companies are giving them higher scores. That wouldwww

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be something worth more investigation and something else where I think you could use a veryimportant use of this new data.

JAY BRINKMANN:One of the issues is that by providing and asking for the various elements around the score, that

would allow the bureau or the Fed to come up with their own interpretation of how then do youcompare this across companies? How do you then compare this within the company? What aresome of the differences, just in terms of what bureau is reporting it? But also there's a timevariant feature. Credit scores are not constant over time. They are not constant in theirpredictability from necessarily perhaps one year from the next but not over a five year period.

One of the not so funny jokes in the industry right now is that, for example, 700 FICO is the new600, because when you look at performance based on models and scores that are just far off fromwhat would have been predicted at the time the loan was made. So with all of that, that's why wethink -- it's one thing for the regulator, for the examiner to pick it up, so they better understand.The issue then is how do you interpret it and put it back out for public use.

FAITH SCHWARTZ:And if I could jump in on that. One thought around credit scores, certainly historically they havebeen heavily weighted towards the credit decision with other risk features like loan to value, debtto income and they are highly correlated with outcomes historically.

To Jay's point, maybe that changed with risk layering, with no docs, et cetera. Myrecommendation would be to think through -- I know there are people like vantage score andothers that have different methods of looking at credit scoring without using any one system,although traditionally FICO has been the dominant one. You have small to mid-sized companiesthat may just use that one and don't have access to several different options and investors wouldrequire things differently. It's a complicated issue.

My other concern around the credit score going forward is, they are really going to be taxed onthis last round of what's happening in the borrower credit world due to the foreclosure issues andthe stress of modifications and repayment plans and the catch-ups.

So the integrity of the scores has got to start being more robust over what everyone is uniformlydoing to report on those scores or they will become less meaningful over time.

CY RICHARDSON:I agree with all the points made, Jay's as well. I would say though, Josh makes a good point. I'mless concerned about the system employed by Bank of America, for example, but I'm interestedin what -- in the uniform exercise of what they have learned in their credit making decisions, andI think judging them against themselves is what we're interested in, in many cases. I think that'svery important give than we seem to be in that national campaign on heightening awarenessaround the importance of credit and different mechanisms to gauge it.

I think I would like to understand generally, you know, judging a bank against itself and how ituses credit in that process, whether it's FICO or another system.www

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THOMAS NOTO:Well, I was going to make a comment. It was one thing to judge a bank against itself, but I thinkreally the statute is heavily weighted towards giving some cross industry comparability and if Icould just sort of get back to you in a second, Cy. You know, I think everyone knows the

different scores. You have some internal scores and whatnot and I think in that world, puttingdigits down on a piece of paper, which is really in a lot of ways meaningless, because unless youknow what those digits mean and unless you can sort of figure out some way of normalizingthem across, you know, wildly disparate models they don't do anything.

So in absolute disclosure, I think there are a lot of challenges with that.

We have talked all here, I think, about maybe a relative disclosure, trying to spread things out,some type of tiering approach to show sort of where people fall within different strata. Thatseems to be something that would get you a lot closer to what we're trying to do here, which is tojust show some, you know, differential there, but absolute numbers I don't see how they are

going to, you know, do anything.

In terms of individual banks, you know, scores can be used differently for different products.There's a lot more to it. This is yet another example where, you know, the data says so much,but there's a lot more oftentimes going on underneath the surface and, you know, my fear and Ithink that of others in the industry is that, you know, people will disclose data that's useful, butthey are very concerned if it can be misinterpreted and it's incomplete. So that's the challengethat I think we all have here.

LISA RICE:And I just want to echo what I said earlier and that is that at least the National Fair HousingAlliance does feel very strongly that a number of these scoring mechanisms have a disparateimpact in the market place and in our comments we discussed that in much more detail, excuseme. Part of it is, you know, right, the product versus the borrower argument, right?

Is it the borrower's characteristics that that generate a certain outcomes or is it the productcharacteristic that generates certain outcomes and I think we have seen a lot of very, very goodstudy that has indicated that the product features can very well impact it and do impact loanperformances.

We have also seen a lot of study that reveals Latinos and African Americans aredisproportionately receiving those unsustainable and sort of product harmful loans. And howdoes that impact then ultimately one's credit score? We believe it impacts it in a negativefashion.

And so we discussed the FICO score in a little bit more detail, and the five sort of categories thatFICO is broken down into, and how we feel that each one of those categories may pose disparateimpact in the market place. I want to underscore that.www

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And secondly, highlight the fact that there are some lenders who don't use a score, and wecertainly don't want to see this reporting requirement be interpreted in the market place as, youknow, becoming some kind of a compelling component to -- to make an originator use a score.We -- there are lenders who have very large portfolios who are doing very, very well withoutusing a scoring mechanism, and we don't think that they should feel that they are compelled to

use a score.

JAY BRINKMANN:One of the other issues on the score is to keep in mind a sense of phenomenon called meanreversion on the scores, and this would tie more into a performance database rather than theorigination, that there are some borrowers who can be counseled as to how to get their scores up.They can undertake various other activities to get the score up for purposes of originating theloan and then over time it reverts back down to where it was beforehand. So it's sort of a longerterm trend sometimes that needs to be understood in terms of credit scores.

JOSH SILVER:

I was very interested when I was reading the testimony of the wells Fargo representative in theSan Francisco hearing, because he was making the point that the data right now, in its limitednature may lead to misinterpretation. He was saying you need to disclose key underwritingvariables like credit scores, debt to income ratios and loan to value ratios so the general publicand regulatory agencies and other stakeholders can better understand what's going on in thelending market place. So I thought that was a very interesting and enlightened argument from alending institution, arguing for more disclosure, and in general, NCRC's view is more disclosureand transparency will make market places work more efficient and more equitable rather thanfreezing lenders to using or not using particular products or approaches that if you have moredisclosure, I think you are going to get more fair -- for fair pricing and more equitable andefficient market place.

And that, you know, with credit scores, why is it, you know, that the best studies to date haveconsistently found that after controlling for credit scores, you still have in other key underwritingvariables you have racial disparities in lending and I hope with enhanced data disclosure, in tenyears that finding, I hope goes away. And I hope that with the better disclosure plays a key rolein making it go away.

LEONARD CHANIN:So I've had a number of discussions of late, with community banks including in Chicagoyesterday, and after listing the litany of regulations that the board has issued recently dealingwith mortgages, as well as many things to come that will be issued by the board or the newbureau, there's concern whether they will exit in terms of market lending. And so my questiondeals with coverage of small institutions and whether or not you believe they will exit the marketplace, we still will engage in a balancing of benefits and burdens and you have to look at thecumulative burdens not only HMDA, but also truth in lending, ECOA, et cetera.

So my question is whether we should recalibrate both for depository institutions but also non-depository institutions who have to report. Currently for depository institutions, I think theywww

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have to report if they are in or have a branch in a metropolitan area and they originate one

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